Mid-size German cities favoured for resi investment - EXPO REAL

Mid-size German cities emerged as the popular choice among an expert panel at Expo Real for residential property investment.

The cities were alternatively referred to as 'B' regions or secondary locations during PropertyEU's European Residential Investment Briefing held at Expo Real on Wednesday.

The issue of preferred investment locations arose when each member of the panel was asked how to invest a fictional €500 mln in the sector.

Mixed strategy
Christof Halwer, managing director, Catella Property Germany said he would employ a mixed strategy, with a third of the equity going to acquire portfolios, a third to development and the rest on newly built properties at the high end of the market. 'This gives you a mixture of something that brings in money; having to spend some money on development and the third element where you will have results for generations'.

Malte Maurer, managing director of mergers & acquisitions at German listed company Deutsche Wohnen said he would apply a similar three-pronged strategy with a mixture of risk.

Maurer continued: 'If doing it for a company I would invest in so-called ‘B’ regions in Germany because the return on investment is higher than ‘A’ regions. Deutsche Wohnen has done this in the past in the recent past in Hannover, Brunswick, Halle-Leipzig.' He said the question was whether such cities would become more important in the residential property market or whether the focus would remain on the 'A' locations such as Berlin.

Sébastian Cavé, managing director of Grainger Germany said he would also adopt a similar approach, though he said the investment locations were best described as 'medium sized cities' in Germany. 'There are a lot of pockets of value in a lot of smaller to medium-sized cities. These cities can be very dynamic; have very good economic fundamentals; populations with strong purchasing power. These locations have performed quite well over the last couple of years in terms of rental growth, albeit from base levels of €5-7 per m2.' Cavé said.

Regional UK markets
Cavé said he would invest €250 mln into that strategy and put some of the fictional allocation 'to work' in regional cities outside London that are seeing economic recovery. He specifically mentioned Liverpool.

Marcus Cieleback, head of research at Patrizia Immobilien, said for diversification purposes he would assign €200-250 mln to a buy-and-hold strategy for existing stock. 'Not in the prime German cities but secondary locations such as university cities and maybe some residential stock in Denmark or Finland that provide stable returns.'

Patrizia's research chief said he would invest another €200 mln in wholesale residential conversion projects in Germany and possibly in Demark. 'The rest would go on opportunities arising in Ireland or other European markets. There are some pockets in the Dutch market where you can really boost your return'.

Mortgage investment
Investing in residential mortgages was suggested by Jaap van der Bijl, managing director investor relations at Amsterdam-based Syntrus Achmea Real Estate & Finance. Van der Bijl said he would invest €200 mln in residential mortgages; €200 mln on residential property opportunities in the Netherlands and Germany. The remaining €100 mln would be earmarked for opportunity driven investment such as acquisition of a portfolio.

Rick Graf, president of US-based Pinnacle, was the only non-European on the panel. But echoing his fellow speakers, Graf said he would invest €200 mln in medium-size German cities and spend a similar amount in the UK, with a focus on London.

The remaining €100 mln would be allocated to a number of city markets in the Netherlands, Graf said.